With the Commonwealth Games now over, and Channel Nine’s four-decade deal with Cricket Australia coming to an end – with the sporting body signing a new $1 billion deal with Foxtel and Channel Seven – IBISWorld has examined the implications, values and trends of sports broadcasting rights.
Shifting consumer media patterns have caused Australia’s television networks to move away from traditional program staples such as sitcoms, dramas and movies – falling ratings and declining advertising returns from which have caused free-to-air (FTA) networks to adjust their business models.
Revenue for FTA television broadcasting has fallen from $7.3 billion 2005-06 to a projected $4.7 billion in 2017-18. As a result, TV networks have focused more and more on securing live sports broadcasts as they remain one of the last ‘must-watch-live’ TV programs, and their broadcasts being used to bolster advertising revenue and sponsorship deals.
Sports broadcasts bring in significant returns in terms of advertising revenue and sponsorship for many television channels and, as sports broadcasts are generally exclusive, they tend to be ratings winners. In 2017, the highest rating programs included the AFL Grand Final, the State of Origin series and the Australian Open final.
The halo effect, which allows for cross promotion of other programs, is also a large draw for TV networks. For example, Seven Network promotes its upcoming programs such as My Kitchen Rules during its tennis broadcasts. Similarly, many sporting events are also timed to fit into the broadcast schedule of TV networks, with events such as AFL games often running directly into nightly news programs.
While sporting events are proven ratings winners, the cost of acquiring sports broadcast rights has increased significantly over the past five years, as FTA TV networks, Foxtel and digital competitors have aimed to outbid each other to acquire key broadcast deals.
The most recent AFL deal is currently the most lucrative in Australia. The deal for 2017-2022 brings in $418 million annually to the AFL, which equates to a 66.8% increase compared with the 2012-2016 rights, which were for $250.9 million per annum. Nine Entertainment also recently won the rights to the Australian Open for five years, at a cost of $60 million per year, an increase of more than 50% over the previous deal.
Free-to-air TV networks spent $497 million on sports broadcasting in 2015-16, representing 26.0% of total spending. Sports expenditure now outstrips news and current affairs programs (at $384 million) and overseas dramas (at $300 million). Sports expenditure is forecast to rise in coming years as sports broadcasting rights become increasingly expensive.
Risks to TV networks
While major sports events continue to perform strongly for TV networks, the increasing cost of sports broadcasting rights also represent a significant risk. Profitability for FTA broadcasters has been in steady decline, with IBISWorld forecasting a slim operating profit of 3.1% in 2017-18.
New players entering the sports broadcast market could also fuel sports rights bidding wars, further affecting margins. For example, Channel 10 is now backed by its foreign parent CBS, which has a significant sports presence in the US market.
Additionally, new media players, such as Optus, have entered the market to benefit from the financial returns generated by live sports broadcasts, with Optus successfully outbidding Foxtel for the streaming rights for the English Premier League in 2016. This reflects trends in overseas markets, where other digital companies such as Twitter have bid on sports streaming rights.
Despite these risks, IBISWorld believes TV networks are unlikely to back away from bidding on sports broadcasting rights as the advertising and sponsorship opportunities are too large to ignore.
IBISWorld industry reports used to develop this release:
X0028 Sports in Australia
J5621 Free-to-Air Television Broadcasting in Australia
J5622 Pay Television in Australia
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Georgia Cook / Anne Wild
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